Blackstone Group Inc., Apollo Global Management Inc. and KKR & Co. are among lenders providing a $1.8 billion loan to back Thoma Bravo’s leveraged buyout of Medallia Inc., the latest in a series of giant-sized deals in the direct-lending market over the past few weeks.
The unitranche loan blends first-priority and subordinated debt into a single facility, and was made directly to the company through the firms’ credit arms — rather than being arranged by banks, according to people with knowledge of the transaction. The lending unit of Thoma Bravo and direct lender Antares Capital LLC are also helping provide the loan. Pricing details on the loan weren’t disclosed.
Blackstone, Apollo, KKR, Thoma Bravo and Antares declined to comment. Medallia did not immediately respond to requests for comment.
Medallia, a company focused on software services, last month agreed to be bought by Thoma Bravo for $6.4 billion in cash. The deal put the debt component of the purchase price at less than 30% of the value of the company.
Unlike some of the recent jumbo unitranches that have recently hit the market, the Medallia loan may have faced some resistance if bankers had attempted to raise the funding in the syndicated leveraged loan market. While the firm has seen double-digit revenue growth, it has been bleeding cash. For the last 12 months ended April 30, the company reported earnings before interest, tax, depreciation and amortization (Ebitda) of about negative $85 million.
Medallia is structured as a recurring-revenue loan, which has become increasingly common for fast-growing software companies that would otherwise have a hard time getting financing in the public markets, according to some of the people familiar with the matter. In general, that kind of financing is initially based on the expected revenue from the companies’ service contracts rather than on earnings.
Investors looking for higher yields are once again shoveling record amounts of cash into private lending, catapulting the asset class to more than $1 trillion globally. With that growth comes the ability to write larger checks, sometimes running above $1 billion. Another component boosting deal sizes is private-equity firms increasingly turning to unitranche loans to fund larger buyouts.
As unitranches have been surging to become one of the hottest parts of the direct-lending market, deal volume has jumped to $21.6 billion in the second quarter, compared with roughly $3 billion during the same period five years ago, according to data from Refinitiv LPC. Unitranche and first-lien loans represented 87% of all private credit deals in 2020, while lower-ranked mezzanine debt declined from 21% in 2013 to 1%, according to law firm Proskauer in its annual private credit insight report.
Last month, the largest unitranche on record hit the market — $2.6 billion of debt financing to help fund Thoma Bravo’s buyout of Stamps.com Inc. Blackstone, Ares Management Corp., and PSP Investments and the lending unit of Thoma Bravo provided the loan.
Blackstone along with three other lenders last month also provided a $2.15 billion unitranche for Veritas Capital’s recapitalization of online education and testing company Cambium Learning Group Inc.